The Gujarat Authority for Advance Ruling (AAR) has held that paper bags manufactured from paper or paperboard are liable to GST at 5% under the entry covering paper sacks, paper bags and biodegradable bags, and not under the competing 18% entry applicable to certain goods falling under the same tariff heading.
Holding that the concessional entry was introduced to encourage environmentally friendly alternatives to plastic bags, the Authority observed, "The very purpose of the Government in inserting this entry appears to be to promote the production of paper sacks/bags and bio-degradable bags which are eco-friendly and environmentally friendly alternatives to plastic bags."
A bench comprising CGST Member Vishal Malani and SGST Member Sushma Vora delivered the advance ruling.
Canpac Trends Private Limited approached the Authority seeking an advance ruling on the GST rate applicable to paper bags manufactured from paper or paperboard. The company contended that its products were covered by the entry prescribing GST at 5% for paper sacks, paper bags and biodegradable bags, instead of the competing entry attracting GST at 18%.
The company argued that its products are classifiable as paper sacks and bags under the Customs Tariff. It also submitted that the newly inserted GST entry covering paper sacks, paper bags and biodegradable bags applied to its products.
After examining the Customs Tariff, the relevant Chapter Notes and the HSN Explanatory Notes, the Authority held that the applicant's products are classifiable as paper sacks and bags.
It then referred to the minutes of the 54th GST Council meeting and concluded that the object behind introducing the new entry was to promote paper sacks, paper bags and biodegradable bags as environmentally friendly alternatives to plastic bags.
"The aspect of taxability of both paper sacks/bags as well as biodegradable bags have been taken into consideration by the Government, culminating in the insertion of the said Entry covering both paper sacks/bags and biodegradable bags."
Accordingly, the Authority ruled that the paper bags manufactured by Canpac Trends Private Limited are covered by the GST entry for paper sacks, paper bags and biodegradable bags and are liable to GST at 5%.
For Applicant: Jay Mahendrabhai Pandya